Must-Win Battles & Strategy of Discount Airline case study of Southwest Airlines

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Must-Win Battles* will show how to identify the critical challenges that will make your business and help you to focus on the most critical tasks.

Strategy Model** is a methodology to describe the grand strategy and the model consist four levels:
1. Mantra (3-4 words and captures the essence of the organization.)
2. Must-Win Battles (identify 3-5 critical challenges )
3. Key Development Areas (strategic issues 2-3 per MWB)
4. Key Activities (also Simple Rules)

Presentation shows how to create visual model with six steps

Published in: Business, Technology

Must-Win Battles & Strategy of Discount Airline case study of Southwest Airlines

  1. 1. Must-Win Battles of Discount Airline Strategy Case Study 1 Image via Flickr user columbuscameraop © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  2. 2. Presentation • Must-Win Battles* will show how to identify the critical challenges that will make your business and help you to focus on the most critical tasks. • Strategy Model is a methodology to describe the grand strategy and the model consist four levels: 1. Mantra (3-4 words and captures the essence of the organization.) 2. Must-Win Battles (identify 3-5 critical challenges ) 3. Key Development Areas (strategic issues 2-3 per MWB) 4. Key Activities (also Simple Rules) • Presentation shows how to create visual model with six steps 2 *( http://www.mustwinbattles.com ) © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  3. 3. 6 steps to visualize your strategic management 1. Why you are successful? 2. Identify 3-5 Must-Win Battles 3. Define key strategic issues 4. Key activities & simple rules 5. Develop mantra 6. Manage strategic development projects, metrics & risks 3© Jukka Ala-Mutka / jukkaam.com / @jukkaam
  4. 4. 1. Why you are successful? 4 Source: http://www.freeimages.com/ © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  5. 5. Identify industry recipe: What are norms of your industry? 5© Jukka Ala-Mutka / jukkaam.com / @jukkaam
  6. 6. In 1970 Airline industry was… 6 Hub and spoke airline system More destinations Premium services for high-end customers Glamour atmosphere © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  7. 7. …but world is changing as it changed in 1970s • New generation • New music genres • Advancements on technology • Growth of middle class • What are megatrends of your industry? 7 Source: http://www.freeimages.com/ © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  8. 8. 8 Create your own recipe: Break all the rules and start a different kind of business © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  9. 9. The core idea of the discount airline business “If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline.” - Herb Kelleher 9© Jukka Ala-Mutka / jukkaam.com / @jukkaam
  10. 10. • Over 40 years ago, Rollin King and Herb Kelleher got together and decided to start a different kind of airline. • Southwest Airlines started operations in 1971 and it was a novel business model innovation that breaks all the rules. 10© Jukka Ala-Mutka / jukkaam.com / @jukkaam
  11. 11. 11 Charge the lowest possible fare with highest possible volume Charge the highest possible fare with premium services ”Norm strategy” in the airline industry in 1970s New strategy for Southwest Airlines © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  12. 12. Evidence of success: growth • 1971: begins service between Dallas, Houston, and San Antonio. • 1975: Southwest expands to 5 aircraft • 1981: 2,129 Employees and 27 aircraft • 1991: 9,778 Employees and 124 aircraft • 2001: 29,274 Employees and 344 aircraft • 2007: Southwest Airlines flies over 104 million passengers a year to 64 great cities all across the country, and we do it more than 3,400 times a day. • Net income: $645 million • Total operating revenue: $9.9 billion • Making profit since 1975! 12 Source: www.southwest.com © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  13. 13. 2.Identify 3-5 Must-Win Battles 13 Source: http://www.freeimages.com/ © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  14. 14. 6 steps to visualize your strategic management 1. Why you are successful? 2. Identify 3-5 Must-Win Battles 3. Define key strategic issues 4. Key activities & simple rules 5. Develop mantra 6. Manage strategic development projects, metrics & risks 14© Jukka Ala-Mutka / jukkaam.com / @jukkaam
  15. 15. 15 What we need to must- win, if we charge the lowest possible fare with highest possible volume? © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  16. 16. 16 Economically? © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  17. 17. Charge the lowest possible fare with highest possible volume 17 1. Highest utilization rate Per Flight Aircraft / day © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  18. 18. 18 Operationally? © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  19. 19. 19 High utilization rate (flight & aircraft) Reengineering Work: Don’t Automate, Obliterate* * http://hbr.org/1990/07/reengineering-work-dont-automate-obliterate/ar/1 2. Simple structure © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  20. 20. 20 Resources? © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  21. 21. 21 3. Lean and productive personnel Reengineering Work: Don’t Automate, Obliterate* © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  22. 22. Summary: Low-cost airline’s the Must- Win Battles • Discount airlines’ strategy model include four Must-Win Battles: • (1) High utilization rate • (2) Efficiency through simple structures • (3) Productive personnel = (4) Very low ticket prices 22 1 2 34 © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  23. 23. Key differences: Network vs. Discount Airline Network Airline • Hub-and-spoke route system • Connected and continental & intercontinental flights • Premium passenger services (seating, meals, lounges) Discount Airline • Nonstop point-to-point routes • Short haul • Limited passenger service (no meals, no seating, no lounges) 23 HUB © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  24. 24. 3.Define key strategic issues 24 Source: http://www.freeimages.com/ © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  25. 25. 6 steps to visualize your strategic management 1. Why you are successful? 2. Identify 3-5 Must-Win Battles 3. Define key strategic issues 4. Key activities & simple rules 5. Develop mantra 6. Manage strategic development projects, metrics & risks 25© Jukka Ala-Mutka / jukkaam.com / @jukkaam
  26. 26. 26 Fact: The average aircraft trip length is 630 miles with an average duration of one hour and 52 minutes. Source: www.southwest.com © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  27. 27. Growth 27 Hub and spoke airline system Nonstop point-to-point routes High utilization rate © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  28. 28. Must-Win Battle #1: Growth • These the key issues keep planes in the air the most of the time (flight time/day). • Southwest is named America’s Most Reliable Airline by Forbes. Southwest proves that low fares don’t have to mean poor service. 28© Jukka Ala-Mutka / jukkaam.com / @jukkaam
  29. 29. 29 Fact: Southwest aircraft fly an average of 7 flights per day, or 13 hours per day. Source: www.southwest.com © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  30. 30. Economics of scale 30 More destinations Frequent departures Source: www.southwest.com Simple Structures © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  31. 31. Must-Win Battle #2: Efficiency through simple structures 31 • The process perspective based on simplicity of mainly in- house operations directly with customers © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  32. 32. 32 Fact: In a 2008 TIME.com survey of the friendliest and stingiest airlines, Southwest Airlines ranked no.1 for being the Friendliest Airlines. Source: www.southwest.com © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  33. 33. Personnel 33 Glamour atmosphere Fun LUVing attitude © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  34. 34. Must-Win Battle #3: Productive personnel 34 • The hardest part of the implementation of low- cost airline business model is personnel. • Create lean organization, flexible, engaged and productive personnel – easy to say, hard to create. • The airline is about 86 percent unionized. © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  35. 35. 35 Fact: Southwest received 329,200 resumes and hired 4,200 new Employees in 2007. Source: www.southwest.com © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  36. 36. Productive Personnel 36 Source: www.southwest.com Only hire persons fit in profile Instead of high skilled workers – multiskilled & right company culture © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  37. 37. 37 Fact: Southwest’s average passenger airfare was $114.48 (2007) Source: www.southwest.com © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  38. 38. Very low ticket prices 38 Premium service for high-end customers Limited passenger service © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  39. 39. Must-Win Battle #4: Very low ticket prices 39 • Low-cost airline allow business travelers, who could not fly in First Class, to enjoy a premium service. • Frequent flyers are people, mostly business, who frequently travel between destinations that are average ~800 miles (average aircraft trip length is 630 miles ). © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  40. 40. 4.Key activities & simple rules 40 Source: http://www.freeimages.com/ © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  41. 41. 6 steps to visualize your strategic management 1. Why you are successful? 2. Identify 3-5 Must-Win Battles 3. Define key strategic issues 4. Key activities & simple rules 5. Develop mantra 6. Manage strategic development projects, metrics & risks 41© Jukka Ala-Mutka / jukkaam.com / @jukkaam
  42. 42. Must-Win Battle #1: Growth 42 Less traffic, reduced taxi time, cheaper gate & landing feesEvery aircraft flight 7 times per day Less time on the ground Availability creates high volume and access to service for frequent flyer © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  43. 43. Must-Win Battle #2: Efficiency through simple structures 43 Efficient aircraft maintenance, low downtime costs Simple services is easy to buy • Just one type of aircraft (Boeing 737) keeps costs down related to pilots’ training, spare parts, maintenance, etc. © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  44. 44. 44 Fact: The airline adopted the first profit-sharing plan in the U.S. airline industry in 1973. Through this plan and others, Employees own at least eight percent of the Company stock. Source: www.southwest.com © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  45. 45. Must-Win Battle #3: Productive personnel 45 Compensation system Culture comes first The core competence of productivity © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  46. 46. Must-Win Battle #4: Very low ticket prices 46 Sometimes it is hard to say what to do… say what NOT to do © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  47. 47. Summary: Simple Rules • 1.Decision making rules • Midsized cities & secondary airports • Standardized fleet of Boeing 737 aircraft • Only hire persons fit in profile • 2.Boundary rules • Very low ticket prices • Limited Service: No meals, No seating, No baggage transfer • No connections with other airlines • Short haul flights • 3.Activity rules • Point-to-point service • Frequent departures • 4.Performance rules • 25-minutes gate turnaround • High utilization rate 47 Source: Ala-Mutka 2008 p. 185-188, see also Eisenhardt & Sull 2001 Simple Rules Make your strategy executable ! © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  48. 48. 5. Develop Mantra 48 Source: http://www.freeimages.com/ © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  49. 49. 6 steps to visualize your strategic management 1. Why you are successful? 2. Identify 3-5 critical challengies 3. Define key strategic issues 4. Key activities & simple rules 5. Develop mantra 6. Manage strategic development projects, metrics & risks 49© Jukka Ala-Mutka / jukkaam.com / @jukkaam
  50. 50. 50 A mission statement, while touted as necessary for any company, often is not representative of the true meaning of the company. Source: Guy Kawasaki, Stanford 20.10.2004 © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  51. 51. Southwest Airlines’ Mission The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit. Source: www.southwest.com 51© Jukka Ala-Mutka / jukkaam.com / @jukkaam
  52. 52. 52 Develop the true meaning of the company - A mantra is shorter 3-4 words and captures the essence of the organization. Source: Guy Kawasaki, Stanford 20.10.2004 © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  53. 53. 53 Frequent FunLow price Simple I’m free to make my own schedule… I know what to buy… I have afford to fly… I can make a choice… © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  54. 54. Southwest Airlines’ Mantra Source: www.southwest.com 54 Frequent Fun Low price Simple © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  55. 55. The whole MWB Model 55 Profitable Growth Efficiency of Processes Productivity of Resources Customer Value Must Win BattlesMeans Key Activities Source: Ala-Mutka 2008 p. 165 Themes of Must-Win Battles © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  56. 56. 56 Strategy is a model, but it is not yet managed © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  57. 57. 6.Key strategic development projects, KPIs & risks 57 Source: http://www.freeimages.com/ © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  58. 58. 6 steps to visualize your strategic management 1. Why you are successful? 2. Identify 3-5 Must-Win Battles 3. Define key strategic issues 4. Key activities & simple rules 5. Develop mantra 6. Manage strategic development projects, metrics & risks 58© Jukka Ala-Mutka / jukkaam.com / @jukkaam
  59. 59. 59 Executable Model? © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  60. 60. 60 Make your model executable Must-Win Battle element KPIs Projects Risks Linking Management Elements with Model © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  61. 61. 6 steps to visualize your strategic management 1. Why you are successful? 2. Identify 3-5 Must-Win Battles 3. Define key strategic issues 4. Key activities & simple rules 5. Develop mantra 6. Manage strategic development projects, metrics & risks 61© Jukka Ala-Mutka / jukkaam.com / @jukkaam
  62. 62. Background of the case: Discount Airline • Case description based on analysis of Southwest Airlines, but the rules of the strategy can be applied to discount airlines or also other discount businesses in general • A low-cost airline is also known as a no-frills, discount or budget carrier or airline. It is an airline that generally has lower fares and limited services. • The term originated within the airline industry referring to airlines with a lower operating cost structure than traditional airlines. • Low-cost carriers should not be confused with regional airlines that operate short flights without service, or with full-service airlines offering some reduced fares, because they have different business model. 62© Jukka Ala-Mutka / jukkaam.com / @jukkaam
  63. 63. Methodology of the Modeling • The structure of the analysis is based on so called Must- Win Battles and strategy as a visual model • Must-Win Battles* will show how to identify the critical challenges that will make your business and help you to focus on the most critical tasks. • Strategy Model is a methodology to describe the grand strategy and the analysis consist four levels: 1. Mantra (3-4 words and captures the essence of the organization.) 2. Must-Win Battles (identify 3-5 critical challenges ) 3. Key Development Areas (strategic issues 2-3 per MWB) 4. Key Activities (also Simple Rules) 63 *( http://www.mustwinbattles.com ) © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  64. 64. Modeling - From Mantra to Key Activities Step 1: Make a mantra Step 2: Define 3- 5 Must- Win Battles Step 3: Define 1- 3 Key Means of the Battle Step 4: Define 0-3 Key Activities of the Mean 1 2 3 4 64© Jukka Ala-Mutka / jukkaam.com / @jukkaam
  65. 65. 65 Visual Strategy Model + Must Win Battles • Jukka Ala-Mutka, Strategiamalli (in Finnish), Talentum 2008. • Strategy Modeling • Visual method • Agile Strategy • Peter Killing & Tom Malnight, Must-Win Battles, 2005 • MUST-WIN BATTLES WILL SHOW YOU HOW TO IDENTIFY AND AGREE ON THE CRITICAL CHALLENGES THAT WILL MAKE OR BREAK YOUR BUSINESS, AND HELP YOU TO MOBILIZE PEOPLE AND RESOURCES TO ACHIEVE THOSE GOALS BY COMBINING STRATEGIC FOCUS WITH EMOTIONAL COMMITMENT. • See also • Eisenhardt & Sull 2001 Simple Rules, Harvard Business Review. • Porter, What is strategy, 1996, Harvard Business Review • Porter, Strategy Advantage, 1985, Free Press. Source http://www.mustwinbattles.com © Jukka Ala-Mutka / jukkaam.com / @jukkaam
  66. 66. Author @jukkaam 66 Contact: https://jukkaam.com/businesscard Serial entrepreneur, speaker, scientist and consultant Contact me for assignments: • Consulting & Training • Keynote Speaker • Board Member • Co-Founder © Jukka Ala-Mutka / jukkaam.com / @jukkaam

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